Private Investor: I can still spot a gleam amid the banking gloom - Spend & Save - Money - The Independent

Private Investor: I can still spot a gleam amid the banking gloom

OK, I called the bottom of the banks wrong last week. Almost no sooner had your copy of the paper hit the doormat than Bradford & Bingley issued its quadruple whammy of bad news – boss resigning, profit warning, failed rights issue and a virtual fire-sale of a 24 per cent stake to American private equity.

Actually, the last bit is probably a hopeful development. Unlike Northern Rock, at least someone wants Bradford & Bingley. Perhaps that's why there hasn't been a run on the bank. The private shareholders who are objecting to Texas Pacific Group getting its hold on B&B are right – but if they vote down the revised rights issue, then they are signing the bank's death warrant. If there's any chance of the small shareholders succeeding, then there probably will be a run on the bank and a collapse in its deposit base. The Bank of England's new special scheme for taking failing banks under its control is not yet in place, so that would be a reet mess.

The Americans have probably got themselves a bargain. They may, I admit, have made a mistake, and the name of this game is risk. The way the property market is going, we may be seeing an even nastier housing correction than we thought possible. That, the general malaise in the financial sector and the ramifications of the credit crunch are hardly good news for the wider economy.

However, even with all the gloom you can muster taken into account, you can still judge the banks to be cheap – as I mistakenly did last week, and as TPG has now.

I did resist the temptation to buy into B&B before the profit warning, because even I could see it was looking a bit dodgy. After the shares crashed on Monday, however, I did have a little punt, at 64p – and, so far, I am one of the few people outside TPG to be in the money on B&B. It is a bit wild, but it might one day bring a little reward.

I do feel sorry for the small investors in B&B who have held their shares since the building society decided to turn itself into a bank in 2000. I was one of those who received free shares in B&B, which I sold a few years later. I can't honestly remember how much I got for them; not the peak, but a tidy little bonus.

How lucky I was. I know people who've lost hundreds of pounds on this. The maximum payout at the time of flotation was £5,000 of free shares. So those investors are looking at a more significant loss, making due allowance for dividends and the tax liability for capital gains when the float happened. Then again, they got the shares for nowt, so how much of a loss will it prove to be in cash terms? Nil, in fact; a paper loss, but a shame nonetheless for the cause of popular capitalism.

The fate of the old building societies must make one wonder whether it was all worth it. Some have turned into outright disasters, like Northern Rock and Bradford & Bingley. Some have just shrivelled up and disappeared, like National & Provincial. Some of the proudest, such the Woolwich, Cheltenham and Gloucester and Birmingham Midshires, have been relegated to the status of brands for the big banks.

Abbey National, the one that started the trend in 1989, fell foul of corporate loans in 2001 and wound up as a branch of Banco Santander. The Halifax/Bank of Scotland merger doesn't seem to have done either that much good.

The odd one out is Alliance & Leicester, though it too seems to have its share of troubles and has seen its share price markedly depressed. It may be the one that gets away, although I cannot see it staying independent for much longer. Overall, though, I don't regret any of my recent bank share buys, and am happy to carry on buying them for the long term.

Even if this isn't the bottom, it may be quite near to it – and you can never call the bottom, anyway. The moves that have been made by Royal Bank of Scotland to raise funds and recapitalise have actually been successful, though others have been less well favoured. So my buy/holds in the sector are quite varied – Bradford & Bingley as a risky bottom-fishing punt; Alliance & Leicester as a less risky one; Barclays on the grounds of size and diversity; RBS because they are doing the right thing about fixing themselves; and Santander for the sake of diversity.

Banking is a fairly commoditised business that can make profits, but not spectacular ones. That is even more true of mortgage banking. Attempts to break out with new ventures have proved a mixed blessing, and we may not see many more such adventures for a decade.

We will also, I predict, see no more building societies deciding to convert into banks. The Nationwide Building Society, our biggest, should be told to stay mutual, at all costs.

Independent Partners; request a free guide on NISAs from Hargreaves Lansdown

News
John Travolta is a qualified airline captain and employed the pilot with his company, Alto
people'That was the lowest I’d ever felt'
Life and Style
healthIt isn’t greasy. It doesn’t smell. And moreover, it costs nothing
News
peopleThe report and photo dedicated to the actress’s decolletage has, unsurprisingly, provoked anger
Property
Home body: Badger stays safe indoors
property
PROMOTED VIDEO
News
The programme sees four specialists creating what they believe are three perfect couples, based on scientific matchmaking. The couples will not meet until they walk down the aisle together
tvUK wedding show jilted
Arts and Entertainment
US pop diva Jennifer Lopez sang “Happy Birthday” to Gurbanguly Berdimuhamedow, president of Turkmenistan
musicCorporate gigs become key source of musicians' income
Arts and Entertainment
You've been framed: Henri Matisse's colourful cut-outs at Tate Modern
artWhat makes a smash-hit art show
Arts and Entertainment
While many films were released, few managed to match the success of James Bond blockbuster 'Skyfall'
filmsDaniel Craig believed to be donning skis as 007 for first time
Sport
Mikel Arteta pictured during Borussia Dortmund vs Arsenal
champions league
Voices
Yes supporters gather outside the Usher Hall, which is hosting a Night for Scotland in Edinburgh
voicesBen Judah: Is there a third option for England and Scotland that keeps everyone happy?
Arts and Entertainment
Pulp-fiction lover: Jarvis Cocker
booksJarvis Cocker on Richard Brautigan
Arts and Entertainment
Robin Thicke and Pharell Williams in the video of the song, which has been accused of justifying rape
music...and he had 'almost no part' in writing it
Finacial products from our partners
Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Sales Executive

    £20 - 24k (Uncapped Commission - £35k Year 1 OTE): Guru Careers: We are seekin...

    Payroll & Accounts Assistant

    £20 - 24k + Benefits: Guru Careers: This is a great opportunity for an enthusi...

    SQL Developer - Watford/NW London - £280 - £320 p/d - 6 months

    £280 - £320 per day: Ashdown Group: The Ashdown Group have been engaged by a l...

    Senior BA - Insurance **URGENT**

    £400 - £450 Per Day: Clearwater People Solutions Ltd: **URGENT CONTRACT ROLE**...

    Day In a Page

    Mystery of the Ground Zero wedding photo

    A shot in the dark

    Mystery of the wedding photo from Ground Zero
    His life, the universe and everything

    His life, the universe and everything

    New biography sheds light on comic genius of Douglas Adams
    Save us from small screen superheroes

    Save us from small screen superheroes

    Shows like Agents of S.H.I.E.L.D are little more than marketing tools
    Reach for the skies

    Reach for the skies

    From pools to football pitches, rooftop living is looking up
    These are the 12 best hotel spas in the UK

    12 best hotel spas in the UK

    Some hotels go all out on facilities; others stand out for the sheer quality of treatments
    These Iranian-controlled Shia militias used to specialise in killing American soldiers. Now they are fighting Isis, backed up by US airstrikes

    Widespread fear of Isis is producing strange bedfellows

    Iranian-controlled Shia militias that used to kill American soldiers are now fighting Isis, helped by US airstrikes
    Topshop goes part Athena poster, part last spring Prada

    Topshop goes part Athena poster, part last spring Prada

    Shoppers don't come to Topshop for the unique
    How to make a Lego masterpiece

    How to make a Lego masterpiece

    Toy breaks out of the nursery and heads for the gallery
    Meet the ‘Endies’ – city dwellers who are too poor to have fun

    Meet the ‘Endies’ – city dwellers who are too poor to have fun

    Urbanites are cursed with an acronym pointing to Employed but No Disposable Income or Savings
    Paisley’s decision to make peace with IRA enemies might remind the Arabs of Sadat

    Ian Paisley’s decision to make peace with his IRA enemies

    His Save Ulster from Sodomy campaign would surely have been supported by many a Sunni imam
    'She was a singer, a superstar, an addict, but to me, her mother, she is simply Amy'

    'She was a singer, a superstar, an addict, but to me, her mother, she is simply Amy'

    Exclusive extract from Janis Winehouse's poignant new memoir
    Is this the role to win Cumberbatch an Oscar?

    Is this the role to win Cumberbatch an Oscar?

    The Imitation Game, film review
    England and Roy Hodgson take a joint step towards redemption in Basel

    England and Hodgson take a joint step towards redemption

    Welbeck double puts England on the road to Euro 2016
    Relatives fight over Vivian Maier’s rare photos

    Relatives fight over Vivian Maier’s rare photos

    Pictures removed from public view as courts decide ownership
    ‘Fashion has to be fun. It’s a big business, not a cure for cancer’

    ‘Fashion has to be fun. It’s a big business, not a cure for cancer’

    Donatella Versace at New York Fashion Week